Boparan Restaurant Group’s confirmation of acquiring Carluccio’s yesterday morning was good news, not least for the 800 people that had their jobs saved.
It also is a preview to a frenzy of similar acquisitions in casual dining, and the wider UK restaurant sector.
As restaurants across the UK remain closed due to Government restrictions combating the spread of Covid-19, their balance sheets suffer.
Rents need to be paid and other fixed costs largely remain in place, which coupled with zero income, or reduced income is an almost impossible balance for any business to maintain.
Fiscal and financial help from the Government eased some of the immediate impact from the Covid-19 crisis, but is temporary.
Restaurants that are able to work with banks through Government schemes such as CBIL’s, or leverage their own relationships can add some temporary liquidity to the balance sheet. Loans of course need to be paid back, and this is where businesses and banks need to be able to see into the future. A difficult task at the best of times and an almost impossible one now.
Restaurant acquisition frenzy looms – Time, Timing and Times
Carluccio’s has an interesting financial history and in some ways reflects the UK casual dining sector. It has had its peaks and troughs in a relatively short lifespan.
In September 2010 Carluccio’s received a £90 million takeover offer from Landmark Group, a Dubai-based investment house, a month later the deal was done.
It looks as if the price paid for the Carluccio’s brand and 30 restaurant outlets yesterday was circa £3 million. That, not allowing a value for the brand, is £100,000 per restaurant. It is also 3.3% of the value placed on the business ten years ago.
There are lots of differences in the comparison, not least just over 40% of the outlets were included in today’s sale compared to 100% in 2010. Nonetheless, the valuations and prices paid are stark by comparison.
We are now facing what could be, and in all likelihood will be, a feeding frenzy by acquirers who hold cash.
Restaurant acquisition frenzy looms – Cash is now master of the universe
I wrote back in early March at the outset of the Covid-19 pandemic – Hospitality and catering businesses need to immediately recognise Cash is KING. Unfortunately, it proved all too accurate a prediction, but hopefully also made some focus on what can be easier to ignore.
If cash has been king in the past, today it is master of the universe, and looks like holding onto its new crown for some while.
Yesterday’s acquisition of Carluccio’s by Boparan Restaurant Group was made in an all cash deal. This not only fuelled the speed of the acquisition process, it was too good for the administrators to turn down. Playing a waiting game in today’s market would only drive the price one way.
So, as most restaurants and restaurant chains sit out the lockdown and balance sheets diminish in value, acquirers sitting on access to cash wait.
Calling a market at the right time and acting on it, requires information, analytics, judgement, and some degree of courage. There are always risks. It also requires deep pockets, so as many businesses seek and secure liquidity doubtless some are also eyeing up bargains right now.